Warren Coats

International Monetary Fund

Contributions to Books

Monetary Policy Issues in Post Conflict Economies

Warren Coats, International Monetary Fund

Abstract

Post conflict environments differ considerably depending on the factors that started and brought conflict to an end, the extent of damage to infrastructure and institutions, and the nature of post conflict governance. Many post conflict countries suffer from ethnic and/or religious divisions and animosities deepened by civil war (Bosnia and Herzegovina, Kosovo, Afghanistan, Iraq). Since the collapse of the Soviet Union, all post conflict territories that have received assistance with their reconstruction from international financial institutions have sought to establish or reestablish market based economies to varying degrees. Most had relatively highly centralized economies prior to the conflict. Thus reestablishment of essential monetary and financial functions generally involved a mix of reconstruction and reform/modernization. The conditions in which reconstruction and reform must be undertaken are rarely idea. They are often very far from ideal. These initial conditions and the society’s desires for reform condition a country’s reconstruction and development strategy.

Drawing on the experiences of Afghanistan, Bosnia and Herzegovina, and Kosovo, and to a lesser extent on East Timor (now Timor Leste), Serbia, and West Bank and Gaze Strip, this report sets out the key issues that need to be addressed when restoring and reforming monetary and financial functions in post conflict economies and the lessons learned from the experience of the last decade. The report is organized as follows: Section II summarizes the monetary and financial issues that must be dealt with in post conflict economies. Sections III – V present more detailed case studies for Bosnia and Herzegovina, Kosovo, and Afghanistan. Section VI concludes with broad lessons of these experiences for future assistance in rebuilding the monetary and financial systems of post conflict economies.